“I am a whistleblower,” he says. “I am notorious. It is a kind of infamy doing what I am doing, isn’t that what they say?”

Mary Shapiro (Source: Getty Images)

Those who ask, as many have, why there have been so few financial whistleblowers should read the 1996 Vanity Fair article about Jeffrey Wigand, the tobacco industry informant, on which The Insider starring Russell Crowe was based.

The investigative journalist Marie Brenner wrote about arranging to meet Wigand when “he is in the first phase of understanding that he has entered a particular American nightmare where his life will no longer be his to control”. Wigand later claimed that he had been harassed and received anonymous death threats. Whistleblowing, the article makes clear, is not for the faint-hearted.

This fear of losing one’s job, of being ostracised as a snitch and of potential retribution certainly explains the relative paucity of whistleblowers emanating from the wholesale financial industry. But there are other reasons too.

Many in the financial industry are well paid (you may have heard about this; it’s been in the press a bit). Whistleblowers face the fear of being dumped not only by their employers but also the entire industry; left adrift with relatively untransferable skills and greatly reduced earning power. It is not entirely true to say that their silence has been bought, but it is not entirely false either. When considered in this light, the surprising thing is not that there aren’t many financial whistleblowers; it is that there are any at all.

But a new programme recently adopted by the Securities and Exchange Commission radically alters the risk-reward trade-off of whistleblowing. It raises the distinct possibility that a chorus of shrill blasts will soon be emanating from investment banks, hedge funds and private equity firms both in the US and further afield.

Just purse your lips and…

There are three main strands to the new programme. The first is employment protection for the whistleblower. This already existed but was reasonably flimsy. Now informants have a lot longer to report whether they have suffered retaliation from their employer as a result of their actions and the protection afforded them is far more robust.

But it is the other two strands that are far more important: whistleblowers can now report misconduct anonymously. And, if their tips lead to successful trials, they will receive between 10% and 30% of the fines collected by the government. When you consider that in 2010 Goldman Sachs paid $550m to settle SEC charges it had misled investors in a subprime mortgage product, you can see why whistleblowers may start worrying less about whether their actions may result in them losing their jobs. This could be the birth of a cottage industry.

Whistleblowers may still be encouraged to purse their lips for purely altruistic or moral reasons. But they might just as easily do so out of greed, in order to settle a grudge or to lay low a competitor. The driving motivations of the whistleblowers will matter not one whit to the regulators; what matters to them is that they blow.

Building cases against financial wrongdoers from the ground up based on circumstantial evidence is phenomenally difficult. The US regulators want informants and they don’t care how they get them. Law enforcement agencies are pragmatic. Cops are perfectly happy to bang a few heads against cars if that’s what works.

The new regime has only been in effect since August last year. But Jordan Thomas, a lawyer who was instrumental in developing the US legislation on whistleblowing when he worked at the SEC and has recently moved into private practice at law firm Labaton Sucharow, says that it has already resulted in a greater number and better quality of whistleblower. He was recently visited by one of the 25 most senior executives of an international bank. Thomas said: “That just didn’t happen before but it is starting to now. The banks should be scared.”

On average, SEC investigations take between two and four years. Thomas expects the first case resulting from evidence gathered under the new regime to come to court by the end of the year. After that the floodgates will be well and truly open.

Can you hear us over there?

Some argue that the UK Financial Services Authority’s more collaborative approach to regulating the financial industry is less conducive to the encouragement of whistleblowers. The two most important elements of the SEC programme – anonymity and monetary rewards – have not been adopted by the FSA (although the Serious Fraud Office did open a confidential hotline for whistleblowers at the end of last year).

In fact, if someone was thinking of blowing the whistle on their employer, they might seriously reconsider after reading the FSA’s website, which plainly states: “We cannot give any categorical assurances on confidentiality.” The FSA also takes considerable pains to suggest that potential whistleblowers first alert their employers of any concerns.

This is entirely right and proper. One of the criticisms levelled at the new SEC programme is that it may prompt employees to circumvent the internal reporting structures that firms spent a fortune implementing to comply with Sarbanes-Oxley. The trouble is, survey after survey shows that employees don’t trust them. Even those who do, tend to have a negative experience. Thomas said that more than half of his clients had reported their concerns internally first but came to him after becoming disillusioned with the process.

But it is easy to imagine how the FSA’s attitude to whistleblowing might change in time. It is entirely possible to contravene US securities rules from London (or anywhere else in the world for that matter). Indeed, the SEC recently opened an investigation into the $2bn trading loss suffered by JP Morgan in the UK capital.

Although the US and UK watchdogs have an excellent working relationship, regulators can sometimes be just as territorial, competitive and image conscious as the firms they police. The FSA is unlikely to stand by for long while whistleblowers prompt SEC investigation into activities taking place on its patch. As Thomas says, we may be about to enter “the decade of the whistleblower”.